Promoting demand for organic food under preference and income heterogeneity

Eerola, Essi and Huhtala, Anni
(2005)
Promoting demand for organic food under preference and income heterogeneity.
Paper at:
The future of rural Europe in the global agri-food system : the XIth international congress of European Association of Agricultural Economists EAAE, Copenhagen, Denmark, August 24-27, 2005.

Summary

We examine the design of policies for promoting the consumption of green products under preference and income heterogeneity using organic products as an example. Two instruments are considered: a price subsidy for the organic products and a tax on the conventional products. Under income disparity, consumers with high income always prefer a socially optimal subsidy to a socially optimal tax, while low-income consumers prefer a tax on conventional products. When environmental policy is determined by the median voter, the policies implemented tend to be stricter than socially optimal policies if income differences are large.